Turkish lira hits new high amid rate hike talk

Erdogan appoints himself chairman of Turkey's sovereign wealth fund

Erdogan appoints himself chairman of Turkey's sovereign wealth fund

"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW.

The central bank said deterioration in pricing behaviour continued to pose upside risks on the inflation outlook, despite weaker domestic demand conditions.

Turkish President Recep Tayyip Erdogan has ordered by decree that property agreements must be made in Turkish lira, in a new bid to prop up the country's beleaguered currency.

"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", the monetary policy committee statement said.

The lira reacted strongly to the decision, rising by 5 per cent in value to 6.0 lira to the United States dollar.

The move comes as Turkey's currency has lost nearly a third of its value against the dollar since January. The independence of monetary policy has been in doubt since Erdogan pledged in his election campaign this year to take on a greater role to bring interest rates lower. The government has transferred to the TVF stakes worth billions of dollars of state assets, including stakes in flag carrier Turkish Airlines, major banks and fixed-line operator Turk Telekom.

The bank said it was hiking its main interest rate by 625 basis points to 24 per cent, double the market consensus for the raise.

Key rates are now at their highest level since 2004, around a year after Erdogan first came to power.

"Obviously, it will have negative consequences on the economy but, I would say, it is less important if you have a hard landing than big corporate defaults due to a vicious cycle between (lira) depreciation and inflation", he said.

"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash.

The bank had not touched interest rates since early June with markets concerned that the policy of the nominally independent bank is being dictated by Erdogan.

Phoenix Kalen, director of EM strategy at Societe Generale, said the market was both pleased and confused by the bank move.

"The central bank is independent and makes its own decisions", he said.

TRY is down around 2% today and it has intensified the sell-off after President R.T.Erdogan advocated for lower interest rates in his comments earlier in the day, reiterating his well-know stance on rates.

Piotr Matys at Rabobank said Turkey also needed to resolve its trade dispute with the U.S. and rebalance the economy away from big infrastructure projects and consumer spending.

The increase, which was higher than expected, boosted the lira by five percent against the dollar and may ease investor concern about Erdogan's influence on monetary policy.

Notícias recomendadas

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.